Downloaders Want Physical Copies, Too

The recent explosion of legal video digital downloading and where DVD fits into that emerging market was one of the hot topics throughout the 2006 Entertainment Media Expo.

Curt Marvis, CEO of CinemaNow, one of the earliest Internet-based VOD providers, detailed his company's new download-to-burn offering.

That physical disc is important, he said. VOD consumers have long clamored for a “burn” option, and early results for CinemaNow are bearing that out.

CinemaNow users are taking advantage of the more expensive download-to-burn offering five times more often than the site's digital-only option, Marvis said.

CinemaNow launched its burn-to-disc service last month with support from several major studios, Buena Vista Home Entertainment, Lionsgate Entertainment, MGM Home Entertainment, Sony Pictures Home Entertainment and Universal Home Entertainment.

The company uses anti-ripping technology embedded during the compression process to thwart piracy.

Once CinemaNow convinces more studios to come along and has a “critical mass” of content available for download-to-burn, it's planning a major marketing push for the new service, including partnerships with blank disc manufacturers and internal and external hard drive companies, Marvis said.

The No. 1 complaint is time, Marvis admitted. It still takes a long time to download and burn a disc from CinemaNow. Eventually, U.S. broadband will catch up to places like Japan, where some consumers can download a whole movie in 15 minutes, Marvis said.

Meanwhile, CustomFlix is providing an affordable manufacturing-on-demand option. It opens up a wealth of content to consumers that, due to the economics of mass production and shelf spaces issues, otherwise never sees the light of day, said Darren Giles, chief technologist for CustomFlix.

The company, owned by Amazon.com, takes content and creates a disc only after purchase. The resultant disc looks just like a normal mass-replicated product.

CustomFlix was previously in the streaming content business and discovered most consumers just don't go that route exclusively, Giles said.

“It's difficult to get people to pay for bytes,” he said. “People like a physical product.”

One much-vaunted way to use digital and yet keep that physical relationship intact are in-store kiosks. Many retailers are seriously looking at these as not only sales tools that will help them compete with Internet delivery, but also offer a way to broaden and deepen catalog offerings.

But kiosks can only hold so much, said Gabe Beged-Dov, software architect for Hewlett Packard who presented a slew of technical specs about kiosks. And, they can only burn about 500 discs per day, he said.

Of course, that's significantly more than the average home computer, which can burn about 5 discs per day, he said.

The kiosk is a great hybrid between a CustomFlix, or a central distribution model, and a CinemaNow, a personal distribution option, Beged-Dov said.

There are four things driving consumers to digital content, said Jim Wuthrich, SVP of Warner Home Video — convenience, portability, selection and value.

“Consumers expect to pay a little less for electronic sellthrough [than packaged DVD],” he said. “They're very well-educated about what things cost, what a DVD costs to make.”

That attachment to physical product everyone is talking about will remain a big factor, he said.

Warner polled consumers on their digital purchase intent and found that only 16% said they'd be interested in buying a download that came with a “no share/no transfer” caveat. Throw in burnability and that number shoots to 60%, Wuthrich noted.

There's a sense of security, of backing up what's on a potentially crashed hard drive with a disc, he said. DVD will remain a “central theme” in the digital world, he said.

“We believe the electronic sellthrough market will grow the overall business,” Wuthrich said. “We are working with retail partners and we think retail will play a key role.”

Some of Wuthrich's fellows on the studio side speaking at the conference agreed that the digital market — just like the high-def market — will be “incremental” rather than “substitutional” for some time.

“It will be right alongside packaged media,” said Ron Schwartz, EVP and general manager of Lionsgate Entertainment. “It will be a growth area that will enhance the overall dollars spent over the next ten years.”

It remains to be seen which model will actually work for the most people, including the studios, he added.

There are still lots of unresolved issues, said Peter Staddon, EVP of 20th Century Fox Home Entertainment.

“As content owners our task is to get the content in the hands of users in a way that allows us to continue to make content,” he said.

There's no argument that there's a consumer base out there willing to spend, he said.

“[But] the model of the dollar download verses the $20 DVD doesn't sit very well with me,” Staddon said. “How do we fulfill that need without compromising the overall business is what we have to address.”